The Hindu Business Line : Index Outlook

The easy passage of the ICICI follow-on public offer and the support lent to the issue by institutional investors, both external and domestic, allayed the market's fear of a liquidity drain and caused a relief rally that took Sensex to an intra-week high of 14560. Having dispensed two large primary issues successfully, the markets are now looking skywards for the next trigger.

FII activity in the derivative segment shows that short covering was one of the primary factors that took the market higher last week. The three-year bull-run has definitely taken its toll on the short-sellers' confidence. Derivative segment continued to see a pile up, the open-interest crossing Rs 70,000 crore. The expiry week ahead has not spurred any unwinding of positions yet. The stagnation in the large cap stocks has seen renewed interest in mid-caps. The BSE mid-cap index made another record high last week. The small cap stocks have, however, not caught up yet.

Sensex moved above the 14400-resistance last week. There is a conflict between the oscillators in the daily and weekly chart. The weekly oscillators are signalling a slow-down while the daily momentum turned positive last week. The inference: though Sensex can move a little higher, selling pressure will be witnessed at higher levels.

As mentioned last week, Sensex is expected to move in a sideways range for a couple of weeks. The upper boundary is being raised to 14755 now though the lower boundary stays at 13820. The target beyond 14755 would be 15075 and then 15186. Fall below 13820 will signal the beginning of a deeper correction. It is best to stay ambivalent while Sensex is bouncing around in this range.

For the week ahead, Sensex is expected to drift lower towards 14104 and then 13823. The 50-day moving average at 14070 would also lend support to the index on its way down. The resistance for the week would be at 14683 and then 14755. Traders are advised to reduce leveraged positions. Investors have no cause for worry till Sensex is above 13820.

Nifty (4252)

Nifty moved beyond our second target last week to the intra-week high of 4279. But the weekly close was below 4263. We expect Nifty to move lower next week to 4117 or 4018.

The 50-day moving average at 4146 would be a good support in the interim. The upper targets for the week are 4308 and then 4362. A close beyond 4362 will signal that Nifty is on its way to 4508. However, we expect Nifty to stay in the range between 4050 and 4400 for few more weeks. It would not be prudent to take positions anticipating a break-out in either direction while Nifty remains in this range. Instead, restrict your positions to short duration trades alone.

Global Cues

Markets in the US and Europe turned hesitant last week and moved lower. These markets are consolidating in a narrow band at higher levels since early June. But the intermediate term up-trend that began in March continues to be in force. Asian markets outperformed their counterparts in other countries. Hong Kong, Indonesia, Malaysia and Taiwan were the forerunners among the bullish brigade.

Aluminium turned distinctively weak last week moving towards the lower end of its intermediate term range of $1.16 on Comex. A rebound is possible from these levels.

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